This month (June 2022), the Bank of England raised interest rates again from 1.0 to 1.25% to combat soaring inflation. This move will have a knock-on effect as mortgage lenders raise interest rates in response, thereby increasing monthly payments for some borrowers.
What does a rise in interest rates mean for your mortgage?
Anyone without a fixed-rate mortgage is likely to see their borrowing costs rise, although how their monthly payments are affected will depend on the type of product they have. Your adviser can help you assess your mortgage deal and figure out ways to make some much needed savings.
- Only borrowers with a mortgage that moves up or down with the base rate will be affected by the interest rate change
- This includes tracker mortgages and standard variable rate mortgages (which you revert to once a mortgage deal ends)
Fixed rate mortgages
Most mortgage holders are on fixed-rate deals so won’t see any change in their monthly payments. This is because the interest rate you pay stays the same for the length of the mortgage deal.
Standard variable rate mortgages
You will usually be moved onto a standard variable rate when your existing tracker or fixed rate mortgage deal ends. For example, if you take out two-year fixed deal and you don’t remortgage, you will be moved to the lender’s variable rate. The rate is likely to be considerably higher than what you were paying before, so your monthly payments will increase, and lenders can raise the standard variable rate whenever they want.
Tracker mortgages
Homeowners with a tracker mortgage will find that their interest payments will now go up, but when this will happen depends on their lender. Tracker mortgages are a type of variable rate mortgage that follow the Bank of England’s interest rate. So, when official interest rates go up, the rate on your tracker will rise as well.
As a rule, they do not exactly match the base rate, but are set a level just above it. For example, if the lender’s rate is the base rate +1%, the interest you’d pay in total on your loan would be 2.0%.
Whatever type of mortgage you have, we can advise you about how the interest rate rise might affect you and address any questions or concerns you have.
How to save money on your mortgage costs
The best thing you can do is to speak to your financial adviser. For example, if you’re on a tracker mortgage, they will be able to advise whether changing to a fixed-term deal to protect yourself from any further rises is a good idea. They will also let you know about the fees involved when making changes to your mortgage. If you are on a standard variable rate, you can switch at any time, so with interest rates rising, your adviser can help you look at available fixed-rate deals.
Homeowners on fixed rate deals don’t have to worry about their mortgage rate going up until their current term ends. Most lenders will let you lock in a new deal six months before the current one ends so it is a good idea to plan.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT
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Whether you’re looking to remortgage or are a first-time buyer, contact one of our advisers who can help you find the most suitable deal for your circumstances to keep your costs down. Get in touch with us today.